an update on financial reform and other legislative/regulatory actions impacting public gas systems...
TRANSCRIPT
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An Update on Financial Reform and other Legislative/Regulatory Actions
Impacting Public Gas Systems Interstate Municipal Gas Agency
Annual MeetingApril 12, 2011Dave Schryver
American Public Gas Association
the voice and choice of public gas
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APGA• The national trade association for publically-owned
natural gas utilities• ~1000 community-owned gas systems
► 36 states► >5M Customers► ~21,000 Employees► ~120,000 Miles of Main
• Meters: 12 to ~500,000• Largest : Philadelphia, San Antonio, Indianapolis,
Memphis, Omaha, Long Beach• Smallest: Freedom, OK (12 meters)
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Priority #1
The Safe and Reliable Delivery of Affordable Natural Gas at Just & Reasonable Rates
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APGA TodayPrimary Committees:
- Government Relations
- Operations and Safety
- Marketing and Sales
- Gas Supply
Complementary Organizations- APGA Insurance Group
- APGA Research Foundation
- APGA Security and Integrity Foundation
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Goal: Restore public confidence in the pricing of natural gas– APGA supported greater transparency in 2005– Public gas systems use market instruments to manage
price volatility – Our transactions do not pose systemic risk– APGA legislative goal was to ensure transparency without
removing hedging tools
Financial Markets Reform
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Overview of Dodd-Frank• Dodd–Frank Wall Street Reform and
Consumer Protection Act signed into law in July, 2010
• Dramatic Change to Financial Regulation• Goals of the Act
– Mitigate Systemic Risk– Transparency– Customer Protection
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Dodd-Frank Act• Goals mean new requirements
– Mandatory Clearing – Mandatory Reporting– Registration of Dealers– New Duties to Customers
Law provides the framework, many of the details will be addressed by CFTC rulemakings
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Dodd-Frank Act• Who is affected by the Act?
– Swap Dealers– Major Swap Dealers– End-users– Special Entities
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Dodd-Frank Act• A Swap Dealer is an entity that:
• Routinely enters into swaps with counterparties as an ordinary course of business for its own account
• Makes a market in swaps• A dealer or market maker in swaps
CFTC will make ultimate determination
Exclusions for insured depository institution, if hedging on own account and not as part of regular business
De minimis exception to be defined by CFTC
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Dodd-Frank Act• A Major Swap Participant is an entity that:
– Is not a Swap Dealer;– Maintains a “substantial position” in swaps;– Positions create substantial counterparty
exposure that may cause systemic risk– A highly leveraged financial entity
CFTC will determine what a “substantial position” is
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Dodd-Frank Act• Requirements on Swap Dealers and Major
Swap Participants:– Registration;– New rules related to fraud, manipulation and
other market abuses;– Position limits; and– Principles in fair dealing and good faith
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Dodd-Frank Act
• An End-User is:– A party that is not a financial entity– Using swaps to hedge or mitigate commercial
risk– Must communicate to the CFTC how it meets
its financial obligations for un-cleared transactions
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Dodd-Frank Act• A Special Entity is:
– A governmental entity including public gas and power systems
– A Pension Plan– An Endowment
The Act places a higher standard of care on swap dealers and MSP’s when dealing with special entities
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Dodd-Frank Act• Requirements when dealing with Special Entities• When acting as advisor must:
– Act in the best interest of the Special Entity– Reasonable efforts to obtain the information
needed to make a recommendation
When acting as a counterparty must:
Have a reasonable basis to believe that the Special Entity has an independent representative to review and approve transaction
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Dodd-Frank Act
What is a swap?- A transaction, agreement or contract that is a
put, call, cap, floor, collar or similar option for the purchase or sale or an interest rate, commodity, currencies, security, etc
- Proposed to include options on physical commodities
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Dodd-Frank Act
- A swap does not include:- Contract sales for future delivery- Sales of nonfinancial commodities for
deferred shipment if intended to be physically settled
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Dodd-Frank Act• The Act places new requirements on swaps• Mandatory clearing of swaps• Swaps will have to go through a Derivatives
Clearing organization, collateral and margin must be posted
• APGA worked with others towards successfully getting an exception for end-users from mandatory clearing
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Dodd-Frank Act• Act required 193 Rulemakings• The vast majority of these must be in place
by July 16th, 2011• CFTC has held 12 Open Meetings on
Proposed Rules• APGA responding to rulemakings that have
biggest impact on public gas systems
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Dodd-Frank Act• Key Rulemakings:
– Standards of Conduct– End-User Exception– Definition of Eligible Contract Participant– Registration of Municipal Advisors– Position Limits– Capital and Margin Requirements– Agricultural Commodity Definition
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Dodd-Frank Act• Next Steps
– Funding– Legislation introduced to delay
implementation of the Act– Regulations go into effect in July
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Environmental Protection Agency
2001-2008 2008-Now
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Global Warming Rules• EPA has taken 3 actions that could
significantly affect utility operations- Final rule on reporting greenhouse gases
(GHG)
- Proposed rule on reporting fugitive emissions of methane from utility operations
- Final rule “tailoring” the Clean air Act to make sense when GHG’s are concerned
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Reporting CO2• EPA requires utilities to report on behalf of
their customers• Other industries get 25,000 metric ton
threshold (~460 MMcf/yr) – not LDCs• APGA sued EPA over exemption• APGA and DOJ signed a settlement applying
threshold to utilities• 8/11/10 EPA proposed a rule setting the LDC
threshold at 460 Million cf/yr
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Reporting CO2
• For those utilities delivering > ~460 MMcf/yr:– By March, 2010, prepare written GHG
Monitoring Plan (APGA has a model plan)– By January 31, 2011, submit a Certificate of
Representation– Original deadline March 31st, new deadline to
be set for this summer
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Reporting CO2• Gas received at city gate station(s)• Gas placed into on-system storage• Gas withdrawn from on-system storage• Gas from vaporized LNG• Gas from local production• Gas delivered to other LDCs or pipes• Gas delivered to customers > 460MMcf/y• Gas delivered to residential, commercial,
industrial and electric generation
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Reporting Fugitive Methane• Utilities must report fugitive emissions of
methane• Proposed rule would allow estimation
rather than direct measurement• 25,000 mt threshold is applied to LDCs,
exempts most public gas systems
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Tailoring Rule• EPA is regulating GHG under the CAA, but• EPA says applying the CAA as written results
in “absurd” results• CAA says major source is “potential” to emit
> 250 tons per year• EPA changed to 100,000 tpy• Expect many legal challenges• The good news: 100,000 tpy exempts most
LDCs and LDC customers
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Other Issues• Pipeline Safety• Natural Gas Vehicles• Energy Bill/Section 5 Reform• LIHEAP Funding• US Export of LNG
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Questions?www.apga.org
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